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Risk adviser's guide to the FAA review

The Issues Paper for the Review of the Financial Advisers Act 2008 and the Financial Service Providers (Registration and Dispute Resolution) Act 2008 is now out.

Wednesday, May 27th 2015, 6:01AM

by Russell Hutchinson

If you are reading this then your career is probably based in this industry – that being the case you should read the review document. Making notes as you go it may take you a couple of hours. They are worth spending.

The review document is clear, accessible, and the review is working on all the right issues, including:
• Whether the laws are serving the needs of consumers
• Whether the goal of increasing professionalism in financial advice is being achieved, and discussions of education standards
• Concerns about the labelling or designations of financial advisers
• Whether there is sufficient distinction between advice and sales
• Managing conflicts – especially commission, and whether it should be banned or restricted
• The balance between access to advice for consumers and the quality of advice provision

From the Minister’s introduction to the step-by-step presentation of the sometimes conflicting goals or issues the document is good. It provides a good brief review of the industry and usually provides sufficient context for the brief description of each of the major issues for the review.

Items of special interest for those offering advice on insurance include:

Most of the examples tend to focus on investment – and distinctions are not always clearly made when discussing "banning" commissions, for example, that commission has been banned in some markets for investment products, and not for insurance products.

There is a discussion in some detail of whether conflicts of interest can be managed by disclosure. Along with this there are some brief consumer comments, and also a box explaining the term ‘churn’ as far as it can be defined.

MBIE always hold the issue of a well-functioning, competitive, market in mind when discussing commission. That includes ensuring continued access for consumers to advice. On the other hand the document is less good at illustrating that conflicts of interest stem from more than just commission. For example, the salesperson in a QFE may not be receiving commission, but the company may enjoy the same effective gain by putting a profitable product on the books. The goal should be to ensure that whatever controls are applied they are applied equally across all channels.

Later in the document MBIE touch on this theme again in their discussion of QFEs, and information disclosure.

Also, you should look especially at the sections which describe the difference in labelling advisers and whether it is clear to consumers when "advice" is being offered in contrast to just a "sales" function.

If you wish to make a submission please note the end date for consultation of July 22. Try to convey feedback specific to the insurance sector – this is often overshadowed by the greater regulatory concern for investment. But the most important thing is to keep foremost in your mind Code Standard One: Placing client interests first and acting with integrity.

Tags: financial advisers Financial Advisers Act regulation

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